NASCUS Meets with FDIC on Insurance Options; Blaine's Credit Union Drives The Exploratory Meeting

WASHINGTON-NASCUS went on a fact-finding mission Nov. 12 to discuss with Federal Deposit Insurance Corporation Board Member Thomas J. Curry, a former NASCUS member and Massachusetts banking regulator, insurance options for credit unions. “Tom Curry has been a longtime member of NASCUS and supportive of our initiatives to strengthen the state system,” NASCUS President and CEO Mary Martha Fortney explained. “We had a very pleasant meeting and a candid conversation about issues of importance now facing credit unions. We discussed how the FDIC works with the state system and balances insurance with state regulatory functions.” Among the topics of discussion were NCUA rulemaking, including the proposed regulations on credit union conversions to mutual savings banks and termination of federal share insurance, federal preemption of state law, having state representation on the NCUA Board, risked-based capital and various options for alternative capital for credit unions, and the Basel II capital standards requirements. In response to news of the meeting, NCUA Special Assistant to the Chairman and Director of External Affairs Nick Owens commented, “NCUA encourages information sharing with other federal agencies. NASCUS represents state regulators and clearly has the opportunity to meet and discuss financial regulatory issues with federal financial regulators.” “For our discussion on FDIC insurance, I wanted to get a sense of comparison, relative to the NCUSIF,” State Employees Credit Union CEO Jim Blaine said. “We talked of the relative cost of coverage, how they treat capital-the FDIC has recognized Risk Based Capital for 12 years- and also about their specialized examiners. The FDIC is familiar with a very broad range of institutions of all asset sizes, from very, very large to small community banks.” He pointed out that the law governing FDIC insurance does not specifically rule out credit unions’ eligibility. “The statute calls for insuring `depository institutions’ and goes on to define them as banks, thrifts and so on,” he said. “Credit unions are not mentioned. The FDIC General Counsel has not issued an opinion on the matter, either.” However, he admitted, at this point it appears the law would not permit credit unions into the FDIC fund. Administrator of the Credit Union Division for North Carolina Jerrie Lattimore emphasized, “Our talk about FDIC insurance was simply a fact-finding effort. As a state regulator with a very large credit union that is interested in exploring options, I feel it was my duty to learn all available information. In a system with one insurance choice, people are always going to seek out other possible options. There’s nothing wrong with that.” Blaine said he has been looking at the FDIC as an option for about six to nine months now. He added that for the last 10 years, State Employees has compared its capital under FDIC requirements and met them every quarter. Using FDIC’s capital standards, State Employees stands at 12%, according to Blaine. “There’s no question of the safety and soundness of the funds. It is the underlying valuation of capital and so forth that are a concern to us,” he said. There are a number of advantages to FDIC insurance, he said. Blaine noted there is prominent brand recognition, and the FDIC risk-weights capital and nearly all banks use alternative forms of capital. In addition, the insurer has experience with a number of different types of financials from cooperative banks to mutuals to industrial loan companies, as well as a various sizes of institutions. There are a number of driving forces behind the issue, Blaine said. First is enhancing the dual chartering system and maintaining the integrity of state regulators. Additionally, for State Employees, it is a “fiduciary responsibility,” he explained. “It’s an equal product at a lower cost, we are obligated to look at it.” FDIC would be cheaper for the $12 billion credit union because well-capitalized institutions do not pay premiums right now. Blaine’s credit union has $100 million sitting in the NCUSIF, he said, not earning interest for a loss of potentially $2 million a year at current rates. Rates are rising and that could mean more losses for potential income on those funds. Finally, an ongoing factor is the overhead transfer rate. Blaine charges that NCUA has yet to make the OTR setting process “transparent” for state charters. “Outside independent assessment is prudent for all organizations.I’m willing to be convinced it’s wildly fair,” he said, “but I’d like to see it.” The NASCUS delegation also discussed the various councils from which FDIC gleans “industry-specific” information. “We wondered if there was some way for the NCUA to consider having such advisory panels, without it seeming like a conflict of interest. Many federal agencies have similar advisory councils,” Blaine stated. Blaine said he does not foresee long-term problems for the NCUSIF if credit unions did become eligible for the FDIC concerning a merger of the funds. NASCUS’ Fortney added, “NASCUS policy and position on the.NCUSIF has always been consistent. We support what the states authorize their state chartered credit unions to do with regard to share insurance. And, we do not favor merging the NCUSIF with any other bank insurance fund.” NASCUS conducts meetings with other financial agency officials and staffers on an ongoing basis, in an open and collaborative style, she said. “We represent the interests of our members faithfully and advocate for a safe and sound credit union system,” Fortney added. NAFCU and NASCUS agreed on maintaining the NCUSIF’s independence and keeping it within NCUA. “NAFCU remains a staunch supporter of the National Credit Union Share Insurance Fund. In fact, the creation of an independent insurance fund to meet the needs of credit unions was one of the reasons why NAFCU was founded in 1967.” NAFCU President and CEO Fred Becker stated. “We have steadfastly lobbied for the continued independence of NCUSIF and will do so in the future.We believe the NCUSIF should remain a part of NCUA, and its current financing structure should be preserved. We would oppose any efforts to separate the NCUSIF from NCUA.” NAFCU has previously stated that all credit unions, “regardless of charter type,” should have to maintain primary federal insurance. However, NAFCU Vice President of Communications Jay Morris stated that the trade association did not anticipate credit unions looking to the FDIC for insurance and would have to formulate a policy position on this issue. [email protected]